Lower Gas Prices Could Cut Shipping Costs

Thanks to lower costs of crude oil, gas prices fell to a 45-month low in October, a shift that economic experts predict will continue over the next few months. According to GasBuddy.com, about 40% of U.S. gas stations were selling gas for less than $3 per gallon in late October.

At the end of October, the national average for a regular gallon of gas was $3.03, a drop of 29 cents in one month alone and more than 75 cents from peak prices this year at the end of April. Ultimately, experts say, the drop in prices could benefit businesses by cutting shipping costs.

The decreased prices can be attributed to a dramatic drop in the value of oil, which closed October at $80 a barrel. However, while oil futures typically decrease in the fall, “this is not your garden-variety autumn swoon in gasoline prices,” said Tom Kloza, chief oil analyst for GasBuddy. “Clearly, there is a risk that crude oil prices could be $10 or even $25 per barrel below crude oil costs in 2011-2013. For some grades of crude, we are seeing the lowest pricing points since December 2010.”

The drop is being fueled by the refusal of OPEC countries to curtail their oil production to maintain prices. In addition, the U.S. government is projecting a record output of shale oil in November, boosting the country’s crude supply to its highest levels since 1986. The International Energy Agency is also predicting a reduction in global oil consumption for the rest of the year by as much as 250,000 barrels per day.

Because of those circumstances, the glut of crude oil in global markets will maintain decreases in gas prices throughout autumn and most likely into the winter. Most significant for businesses, including ad specialty firms, is that the decreases will be applied to shipping costs as well.

“Ultimately that price savings will be passed on to the customer,” Dan McMackin, a spokesperson for UPS, told Counselor. “It’s a direct relationship.”

UPS, like all shipping companies, has a fuel surcharge that is built into the price of a shipment. McMackin says UPS bases its surcharge rates not on the price at the pump, but what the oil industry charges for bulk fuel. The savings won’t be instantaneous, he notes. Usually price swings based on fuel won’t affect the frequency of shipments.

“Consumer demand for shipping is something that stays fairly constant,” he said. “It’s like people putting gas in their car.”